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Monday, July 14, 2008

Michael Heller's The Gridlock Economy

This past weekend, I read Michael Heller's new book The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives. The "this past weekend" part of the previous sentence says a lot of good things about the book -- I have two young kids, and not a lot of free time on the weekends. The Gridlock Economy is one of those rare books that makes important theoretical points while being an easy, enjoyable read. Like Hernando de Soto's The Mystery of Capital, The Gridlock Economy is clearly written and illustrates its points with engaging examples. You could assign the whole book for a week's reading in a class and not feel guilty about overwhelming your students.

The book's core points build on insights that Heller first developed in The Tragedy of the Anticommons: Property in the Transition from Marx to Markets. The basic idea of the anticommons is that highly-divided ownership of property can lead to the underutilization of resources. If too many people have control over a resource, decisionmaking gets gummed up, transaction costs multiply, and resources are underused. Heller's iconic example of the anticommons is Moscow storefronts, where the right of many "owners" to veto various uses led to stores that remained vacant while kiosks thrived on the sidewalks just outside. If the tragedy of the commons can be seen as being caused by an absence of property rights, the tragedy of the anticommons can be seen as being caused by an overabundance of property rights. Heller argues that we should be seeking the sweetspot between too much and too little property: "Well-functioning private property is a fragile balance poised between the extremes of overuse and underuse." (p. 19).

The Gridlock Economy explores this theme in a number of interesting settings, including biotech patents, broadcast spectrum, land use regulation, and land assembly. My one quibble is that the book occasionally crams problems that don't seem to fit into the anticommons category. One example is the fiasco of underutilized broadcast spectrum owned by television broadcasters. (p. 96) If the broadcasters had stronger property rights in this spectrum, it probably would not be underutilized to such a degree. This particular problem therefore seems to be more about too little property, rather than too much property. Another example is the problem of highly-fractionated interests that results from multiple generations of a family passing property through intestacy. After a few generations, a single plot of land can have scores of owners. These multitude of owners can lead to real anticommons problems -- just imagine trying to get the consent of thirty cousins to do anything with a piece of property. As a remedy for this sort of multiple-ownership problem, the law allows the property to be partitioned. For property with many owners, partition is usually achieved through a judicial sale of the property, with the proceeds divided among the owners. As Heller describes (p. 121)the partition process has a ton of flaws, and needs to be reformed. But Heller's complaints about partition are about the flaws in a remedy for an anticommons problem, not the anticommons problem itself.